Will SolarCity (SCTY) Miss Q1 Earnings on Mounting Costs? - Analyst Blog

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SolarCity Corp.SCTY will release first-quarter 2015 financial results after the market closes on May 5, 2015. The company has beaten earnings estimates in two of the last four quarters, delivering a positive average surprise of 4.33%. Let's see how things are shaping up for this announcement.

Factors to Consider

The California-based company continues to pursue multiple growth ventures and marketing ploys to strengthen its presence across the nation. Launched in Oct 2014, SolarCity began its MyPower solar loan offering in eight states comprising Arizona, California, Colorado, Connecticut, Hawaii, Massachusetts, New York and New Jersey.

Its latest marketing ploys include the collaboration with MP2 Energy to offer solar energy to Texas homeowners at reasonable costs through the full net metering program. The company has also teamed up with DIRECTV to provide affordable solar electricity to homeowners across the U.S. In addition, it unveiled the MyPower loan program to homeowners of Mexico and to Maryland for the first time.

With the MyPower program alone accounting for about 30% of the company's bookings in the fourth quarter of 2014, it is likely that these initiatives will support the company in expanding its customer base and auguring growth in the long term.

During the first quarter, SolarCity also launched GridLogic, a new microgrid service that will provide communities with an affordable, clean and locally generated solution to use energy.

That being said, the company has failed to earn profits for nine consecutive quarters while its operating expenses have risen significantly. The company's total operating expenses rose 134.6% year over year to $134.9 million in the fourth quarter 2014. SolarCity's failure to restrict operating expenses may adversely impact its bottom line substantially.

However, the money being invested in the business currently will likely boost its top line over the long haul. SolarCity however brought down its average cost per watt by 9% year over year to $2.86 during the fourth quarter 2014. It further aims to bring down this cost to $2.50 per watt by 2017.

Earnings Whispers?

Our proven model does not conclusively show that SolarCity will beat earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: SolarCity currently has a negative Earnings ESP because the Most Accurate estimate stands at $1.74, while the Zacks Consensus Estimate is pegged lower at $1.60. This equates to a difference of -8.75%.

Zacks Rank: SolarCity's Zacks Rank #4 (Sell) when combined with a negative Earnings ESP makes an earnings beat difficult. As it is, we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

At its Peer

First Solar Inc. FSLR reported adjusted first-quarter 2015 loss of 62 cents a share, much wider than the Zacks Consensus Estimate of a loss of 29 cents.

Upcoming Releases

Canadian Solar Inc. CSIQ is scheduled to release first-quarter results on May 7.

Vivint Solar Inc. VSLR is expected to release first quarter results on May 12

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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